5 trends for Southeast Asia e-commerce in 2017

Profitability will be a key theme for Southeast Asia e-commerce in 2017 as businesses look to extend their runway as we enter a deleveraging cycle with less availability of venture capital.

Tough Venture Capital Financing Environment Ahead

Up to now, major e-commerce players have been able to take advantage of the venture capital chasing the US$67–89 billion addressable market to fund growth. In fact, the e-commerce industry accounts for 68% of total venture funding in ASEAN countries, according to Jefferies.

With access to huge amounts of cash being injected into the industry, e-commerce companies have been able to adopt a growth-driven mindset.

However, recent numbers show that financing trends have declined both globally and in Asia. Compared to 2015, funding in 2016 has fallen by 21.4%, with the number of deals decreasing by 6.7%.

E-Commerce Players To Focus On Cash Flow

Many e-commerce companies can no longer rely on readily available VC funding at attractive valuations to fund growth. The recent slew of down rounds in the e-commerce industry, illustrated in the table below, indicate that cash flow will be increasingly at front of mind for many e-commerce companies.

Source: CB Insights.

Trends To Look Out For In 2017

In 2017, e-commerce companies will need to find new ways to grow. We expect a greater emphasis on profitability and cash flows. We expect to see the following trends:

Brands will focus on core and high potential markets like Indonesia, Thailand, Malaysia, and Singapore and cut back on investments in non-core markets.

Further consolidation of mass market players from strategic investors looking to gain a foothold in Southeast Asia from China, US, and Europe.

Niche e-commerce companies drive for more efficient operations and processes to lower costs is an effective strategy to increase profitability.

More traditional retailers to expand into the online market as a lower cost way to grow, extend their distribution reach and engage younger customers than their offline channels.

The rise of enabling technologies such as technology that can reduce logistics and supply chain costs, artificially intelligence marketing tools that can drastically improve returns, behavioral analysis technologies to detect fraudulent purchases and many others.

What is for certain is that with current market trends and financing landscape, Southeast Asia e-commerce will have to shift their growth-driven mindsets to ones of profitability.